Bayer could get ECB financing for Monsanto bid, rules show

By Francesco Canepa

3 Min Read

A Monsanto logo is pictured in the company headquarters in Morges, Switzerland, May 25, 2016.Denis Balibouse

FRANKFURT (Reuters) - Bayer (BAYGn.DE) could receive financing from the European Central Bank that would help to fund a takeover of Monsanto (MON.N), according to the terms of the ECB's bond-buying program.

U.S.-based Monsanto, the world's largest seed company, turned down Bayer's $62 billion bid on Tuesday, but said it was open to further negotiations.

The ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements.

The purpose for which the bonds are issued is not among the criteria set by the ECB, which will start buying corporate bonds on the market and directly from issuers next month.

This means that, in theory, the ECB could buy debt issued by Bayer, which said on Monday it would finance its cash bid for Monsanto with a combination of debt and equity.

"It will be interesting to observe how much of such a deal would be absorbed by the central bank," credit analysts at UniCredit wrote in a note.

The ECB is buying 80 billion euros ($90 billion) worth of assets every month in an effort to revive economic growth in the euro zone by lowering borrowing costs.

Central bank sources told Reuters that it would not be the ECB's first choice if the money it spent ended up financing acquisitions.

But even this would have a silver lining if consolidation made an industry or sector more efficient and if it gave fresh impetus to the stock market, the source added.

And if issuers ended up exchanging the euros raised through bond sales for dollars, that would also help the euro zone by weakening the euro against the greenback, the sources said.

Bayer has investment-grade ratings from S&P, Moody's and Fitch, but all three agencies said they were reviewing their ratings for possible downgrades following the offer for Monsanto.

Moody's said the Monsanto acquisition might lead to a multi-notch downgrade of Bayer but it did not anticipate that the deal would cause the group to lose its investment-grade status.